German Government’s International Broadcasting Agency Announces Glass-Steagall “is on the Table” in U.S. and Germany

Aug. 10, 2012 (LPAC)–Deutsche Welle, the official international
broadcasting agency of the German government, runs a lengthy
article announcing boldly that Glass-Steagall “is on the table in
the United States and Germany.” American statesman Lyndon
LaRouche called the article significant, noting that a number of
opponents of Glass-Steagall have recently turned to endorse it,
such as the Financial Times and The New York Times, and in
Germany, the debate has been joined by Handelsblatt, Der Spiegel,
and the Constitutional Court. LaRouche characterized the support
for Glass-Steagall in both nations as “reaching a significant
threshold.”
The entire article, written by Andreas Becker, appears
below. Deutsche Welle is aimed at an international audience, as
BBC is in Britain.

“Can Breaking Up Banks Fix the Financial Crisis?”

“An over 80-year-old idea is on the table in the United States
and Germany: separating risky investment activities from everyday
banking. But views differ on how strict the separation should be
and if it will even help.

“In October 1929, the New York stock market crash plunged the
American economy into ruins. Within just a few years, the US
government implemented reforms that drastically changed the
financial sector. The Banking Act of 1933, otherwise known as the
Glass-Steagall Act, saw the separation of banking activities. It
barred commercial banks, which provided clients with normal
savings and checking accounts as well as loans, from underwriting
stocks and bonds or otherwise dealing in risky investments.

“`As early as the 1920s, Senator Carter Glass, one of the authors
of the act, believed that too much money was being pumped into
speculative investments,’ said Hans-Joachim Voth, economic
historian at Pompeu Fabre University in Barcelona. `With the
Great Crash and ensuing Depression, Glass saw an opportunity for
pushing through a clear separation of commercial banks from
investment ones.’”

- Reform fervor back then, a fear of reform now -

“The Glass-Steagall Act was not the only change made in the US
banking sector. The US Securities and Exchange Commission (SEC)
was established one year later — in 1934. It continues to
enforce federal securities laws and regulate the industry in the
United States. The Federal Deposit Insurance Corporation (FDIC),
which protects deposits in member banks, was also created at this
time.

“In contrast, — nearly four years after the collapse of Lehman
Brothers — politicians have few fundamental reforms they can say
will protect future generations. `It’s bordering on the criminal
that we have not learned one lesson from the crisis [that began
in] 2007 and have not really managed to improve regulatory
mechanisms,’ Voth said. `I think it also reflects a failure of
intellect.’

“`The banking business, the complex financial products, its
interdependencies with the mainstream economy — all this seems
so complex to the politicians that they are afraid of doing
something wrong,’ Voth said.

“`They listen to experts from the financial sector, and then they
leave everything the way it was before,’ Voth added. The reforms
so far have been limited to small changes in the equity rules, he
said. `There is no way we will be able to prevent the next crisis
with them.’

“Above all, the new capital adequacy rules known as Basel III
have not even entered into force. In the United States, the
attempt to ban banks from speculating on their own account has
been postponed for now. Britain is planning a series of reforms,
but no law is expected before the summer of 2015.

- The appeal of the old system -

Pictures of Glass and Steagall, with caption: “Senator Carter
Glass and Rep. Henry B. Steagall wanted to help end the Great
Depression”

“No wonder then that some now wish a return to the major reform
of the past, the separation between commercial and investment
banks of 1933. That was finally eliminated in 1999 under
President Bill Clinton. The decision suited a time in which
deregulation was the magic word.

“Even before 1999, the legal separation of banking had been
gradually weakened. Thus, in 1998 the financial giant Citigroup,
itself the result of a merger, was allowed to buy the investment
bank Salomon Brothers.

“Ironically, Sandy Weill, head of Citigroup until the outbreak of
the financial crisis and one of the major beneficiaries of
deregulation, is now demanding the reintroduction of the
separation between commercial and investment banks. The New York
Times, which had fought the Glass-Steagall Act for years is now
a convert. `Having seen the results of this sweeping
deregulation, we now think we were wrong to have supported it,’
the newspaper said in an editorial.

“In Germany, Social Democratic Party leader Sigmar Gabriel and
Nikolaus von Bomhard, CEO of reinsurer Munich Re, have come out
in favor of separating banks. They said there should be no banks
that are so important for a country that they need to be rescued
with taxpayers’ money: `If something is system-relevant,
something is wrong with the system,’ von Bomhard said.

- Size isn’t everything -

“`I’m not a big fan of a black and white policy that says we
should break up the banks and keep them seperated,’ said Georg
Fahrenschon, president of the German Savings Bank Association.

He defended universal banks that do everything — account
keeping, lending, securities trading and foreign exchange
transactions. `Over the last three years, we have seen how
important it was to have regional banks that could also help
mid-sized companies with currency risk management.’

Repeat of pictures, with capiton: “Senator Carter Glass and Rep.
Henry B. Steagall wanted to help end the Great Depression”

“Economic historian Voth also said he does not believe that a
two-tier banking system would have prevented the financial
crisis. But added that a separation is necessary to prune banks
back down to a size that does not threaten the entire economy.
Until the beginning of liberalization in the 1980s, the world
managed to get by very well without banks that were `too big to
fail,’ and economic growth was strong.

“Voth said the argument that growth was not possible without
large international financial groups is a myth: `Nothing that is
important to the economy was really worse 20 or 30 years ago. We
wouldn’t really miss any of the economic functions that
investment banks perform today due to their size.’

“Because of its size Deutsche Bank is also `a risk to Germany
that would be really hard to bear,’ said Voth. `I do not know how
many crises we need to go through before we learn to regulate
things well.’”

August 10, 2012
Author Andreas Becker

This entry was posted in Glass Steagall and tagged , , , , , , , , . Bookmark the permalink.

2 Responses to German Government’s International Broadcasting Agency Announces Glass-Steagall “is on the Table” in U.S. and Germany

  1. マークバイマークジェイコブス

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